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The US Coronavirus Relief Package: How Hospitals Can (and Cannot) Claim and Spend Funds

As COVID-19 continues to plague the world, governments are beginning to pass legislation aimed at both strengthening critical infrastructure and propping up the wider economy. Of course, in the countries most severely affected by the pandemic, the healthcare industry is both the critical infrastructure point most in need and most ravaged.

Overrun, under-equipped, and shorthanded, hospitals have struggled to keep up with the influx of COVID-19 patients, struggled to procure the medical technologies and supplies needed for effective treatment, struggled to maintain smart contagion containment strategies, and struggled to continue their normal and profit-generating activities that are key to keeping the lights on.

In fact, with the complete suspension of elective surgeries and other money-making procedures, hospitals are looking at as much as a 50% decrease in revenue.

Emergency Support for the US Healthcare System

The CARES Act is intended to address emergency healthcare needs during the COVID-19 pandemic as well as financing initiatives for prevention and treatment. These provisions are covered in Title III of the CARES Act, under the header “Supporting America’s Healthcare System in the Fight Against the Coronavirus”.

In addition to an immediate infusion of $30 billion into the healthcare system, the act established a $100 billion Public Health and Social Services Emergency Fund (PHSSEF) through which the U.S. Department of Health and Human Services (HHS) may reimburse “eligible healthcare providers” – which include public entities, Medicare- and/or Medicaid-enrolled providers and suppliers, and others (as determined by HHS) that diagnose, test, or care for individuals with possible or actual cases of COVID-19 – for non-reimbursable expenses related to COVID-19.

The act will also fund testing and development of vaccines as well as medical treatments and supplies. In addition, it provides guidance for the industry and federal government with regards to monitoring and maintaining strategic supply chains and stockpiles pursuant to pandemic prevention and treatment requirements. This aspect of the bill is designed to outlast current emergency circumstances and better position the country to handle such events in the future.

While the US Coronavirus Relief Package is somewhat opaque around the specific qualifications and requirements of relief distribution, most people in the industry assume that Health and Human Services (HSS) will have the ultimate say in arbitrating its practical terms and restrictions. That being said, the aforementioned note about aspects of the act revealing a future-facing purview may be significant. It’s a plausible nod to the longer-term orientation with which the bill was drafted and with which it will likely be implemented.

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Similarly, the fact that the legislation refers to “modernization” spending without making clear exactly what that means may offer some insight into the guiding logic with which applications will be reviewed and adjudicated. Another strong indicator that the act takes a broader mandate can be found in the fact that the HHS does not require qualifying beneficiaries to have provided care specific to COVID-19. As the department explains, “HHS broadly views every patient as a possible case of COVID-19.”

The Mandate & Purview of Hospital Entitlements Under the Coronavirus Relief Package

Focusing on community health centers / expanded remote care enablement, drug access, CDC investments, veterans’ care, and medical supplies, the CARES Act looks to inject funding to healthcare players beyond those hospitals on the front line of the COVID-19 pandemic.

The act promises additional funding for healthcare education, training, and modernization and requires health insurers to cover tests administered for purposes of COVID-19 diagnosis along with any potential vaccines and treatments developed.

By necessity the healthcare provisions of CARES Act were drafted using imprecise language. This was done in order to leave the bill somewhat open to interpretation so that it could be adapted to the needs of the industry as the situation on the ground evolves.

Hospitals stand to receive an immediate 20% bonus for COVID-19 patient treatment. They will also benefit from the government’s cut of 2% in Medicare reimbursements as well as delaying payment reductions for hospitals with large amounts of uninsured and low-income patients.

The bill also allows for purchases of protective gear for healthcare employees working with coronavirus patients.

Financial losses as a result of COVID-19 would include forgone revenue from cancelled procedures or suspended service offerings.

Projects or expenses initiated in preparation for COVID-19 would include non-reimbursable expenses such as stocking up on supplies, acquiring new ventilators, setting up quarantine zones, retrofitting intensive care units, and building temporary structures.

Projects or expenses initiated in response to COVID-19 would mostly relate to the treatment, care, and accommodations required for COVID-19 or suspected COVID-19 patients throughout the course of the pandemic. Still, this category may be deemed wider in scope than the other two.

If, for example, during the course of the pandemic certain care-impeding infrastructural or operational inefficiencies came to light, projects undertaken to rectify or otherwise mitigate those impediments and improve emergency preparedness would ostensibly qualify for CARES Act relief.

The legislation also enacts an expansion of the Centers for Medicare & Medicaid Services’ Accelerated and Advanced Payment Program (AAPP), according to the terms of which most hospitals will be able to arrange one-year interest-free loans equal to the previous six or three months (depending on the provider category) of Medicare funding they received. These loans are being made available with the express purpose of helping with cash-flow issues resulting from lost revenue streams, staffing challenges, and billing disruptions related to COVID-19.

Rural hospitals as well as those in underserved regions will be eligible for 125% of the amount in advance. Those facilities are expected to be hit especially hard because of their already low margins and limited capacity for staffing.

Because this particular entitlement is offered in the form of a loan rather than a payment, hospitals will have much more freedom in how they chose to spend the money. For example, as long as the repayment window is maintained, it may make sense for hospitals to consider technology investments or modernization projects that would improve the organization’s long-term solvency.

In addition to the CARES Act’s provisions specifically for the healthcare industry, small and mid-sized hospitals will be able to tap into other allowances designed to support the wider economy and the vulnerable business community. For example, $349 billion have been set aside for the Paycheck Protection Program (PPP). The program is mandated to lend to mid-sized businesses, defined as “businesses, including, to the extent practicable, nonprofit organizations, with between 500 and 10,000 employees.” Of course, a great many hospitals fit that bill and will therefore be eligible to apply for low-interest loans.

These loans, accruing interest at an annual rate no greater than 2%, are to be considered on the basis of business needs, and conditioned, among other things, on the organization’s ​​commitment to retain and restore it’s workforce to pre-crisis levels. Here too the access to otherwise unavailable capital may be seen as an opportunity to invest in ROI-positive projects that may have otherwise been unfeasible.

How to Apply for Relief

To apply for grant relief from PHSSEF, HDOs should submit a formal request to the HHS. The request should include the organization’s tax identification number as well as a statement justifying the grounds for relief and how the money will be spent.

CyberMDX recommends that wherever possible applicants offer specific explanation as to why the funds are necessary to sustain operations in the face of or following COVID-19. Similarly, it is advisable to explain the likely consequences should your request be denied. If the organization may be forced to initiate layoffs or if insolvency may result, that information should be included and where possible corroborating evidence (accounting) should be supplied.

HHS is reviewing applications and issuing payments on a rolling basis. Payments may include prepayments, prospective payments and retrospective payments, subject to the HHS’ determination of what is appropriate.

Because eligibility is to be considered on the basis of need and intended use, interested HDOs are encouraged to treat each project/financial justification as a distinct request and to submit separate applications. This should help increase the chances of receiving as much funding as possible.

To begin receiving those funds and to enjoy cash flow relief as soon as possible, it is recommended to first submit applications for payments on account of those losses and/or expenses most directly and undeniably related to COVID-19. Only after those applications have been sent out, would it make sense for HDOs to request aid to more generally support the organization’s forward-facing operational and financial resilience.

In these second-tier requests, applicants should make a point of explaining how the funds would help prepare their organizations to meet the demands of a second wave of COVID-19 infections. If possible, they should also mention how funds would be applied to modernization projects that stand to increase operating efficiency, upper limit capacity, remote monitoring and care capabilities, and care coordination more generally.

To be considered for loan relief under the expansion of AAPP, a separate application will need to be submitted. HDOs should be able to access this application through their Medicare Administrative Contractor’s (MAC) website.

To pursue loans through the Paycheck Protection Program, You can apply through any existing SBA 7(a) lender, any participating federally insured depository institution, federally insured credit union, or Farm Credit System institution.

Restrictions

Some of the provisions of the CARES Act are subject to their own separate restrictions. For example, organizations receiving PPP funds are prohibited from executing stock buybacks and issuing dividends or capital gains distributions. Compensation increases and severance payments for officers and employees salaried in excess of $425,000 are also forbidden. These organizations are also not allowed to outsource or offshore jobs for a full two years from the time of the loan’s payback. And as mentioned above, PPP loans carry an obligation to restore the workforce to pre-crisis levels.

On the other hand though, PPP and AAPP expansion loans are exempt from some of the main strings attached to relief provided through PHSSEF; most notably that “[p]ayment will only be used to prevent, prepare for, and respond to coronavirus, and shall reimburse the Recipient only for health care related expenses or lost revenues that are attributable to coronavirus.“

As mentioned above though, that rather stringent sounding qualifier is itself not as restrictive as it first appears. What constitutes a response to coronavirus, for example, is open to some reasonable interpretation, and attributability—in light of the HHS’ view that every patient is a possible COVID-19 patient— needn’t be too difficult to satisfy.

Significantly, as a condition of receiving Title III funding, HDOs must agree not to seek collection of out-of-pocket payments from a COVID-19 patient exceeding what the patient would be required to pay an in-network provider.

Among other requirements, recipients will need to report on:

The total amount of funds received from HHS

The amount of funds received that have been spent or obligated for each project or activity

Cost documentation should adhere to the requirements of 45 CFR § 75.302 – Financial management and 45 CFR § 75.361 through to 75.365 – Record Retention and Access

A detailed description of all projects or activities for which large covered funds were expended or obligated,

This description should include the estimated number of jobs created or retained and detailed information on any level of sub-contracts or sub-grants awarded.

Beyond reporting and in addition to other restrictions, beneficiaries of the US coronavirus relief package are required to attest to and ensure that funding does not go toward:

Paying executives with salaries above $197,300

Lobbying activities

Unexceptional cases of abortion

Embryo research

Controlled substance legalization advocacy

Unexceptional needle exchange programs

Propaganda activities

Activities in contravention of the US Privacy Act

Business dealings with any corporation that has an unresolved Federal tax liability

Business dealings with any corporation convicted of a Federal felony within the preceding 24 months

Any project that entails the capture or procurement of chimpanzees obtained from the wild

Other Considerations

The House of Representatives just passed "interim emergency" coronavirus relief bill that includes another $75 billion for hospitals and community health centers. As a result, those new funds will be added to the PHSSEF pot and subject to the same terms and conditions.

With so much operational and financial strain to contend with, hospitals should not look to government alone for salvation. It’s important that HDOs also turn their gaze inward and take it upon themselves to do whatever they can to improve their business resilience.

Smart hospital administrators will take a hard look at their books and business obligations and take decisive measures. They’ll look to secure near-term cash flow wherever possible, review existing loan agreements, assess risks and identify restructuring opportunities (e.g., defer or reduce loan payments, extend loan maturities, suspend payments, increase current account credit line). The goal is to keep the lights on and doors open so that you can continue to provide care for as long as possible while praying for things to return to normal.

Still the importance of the US coronavirus relief package to hospitals should not be understated. As this pandemic continues to grip the nation and the world, relief courtesy of the CARES Act may well be the difference maker when it comes to which hospitals survive and which don’t. It behooves smart administrators to take full advantage of the relief they’re entitled to.

Where compliant with the bill's provisions, HDOs should avail themselves of the bill's offerings with as forward-facing, long-term a strategy as possible. This is especially true when looking to take advantage of loans with low or suspended interest accruence in order to pursue modernization and operational efficiency projects that would carry a comparatively short payback period.